Recent Developments in Private Company Financial Reporting

Over the last six years the topic of private company financial reporting and the need for a differential set of accounting and reporting standards has gained growing attention. As accounting standards have become increasingly complex, there has been overwhelming support for modifications of existing standards for private companies.

Some of the concerns expressed by private entities focus on the relevance and usefulness of certain U.S. generally accepted accounting principles (GAAP) as they relate to private companies. Additionally, the cost to implement many of the complex standards has become a major financial burden to small entities with little to no benefits.

In December 2009, the American Institute of Certified Public Accountants (AICPA), the Financial Accounting Foundation (FAF), the Financial Accounting Standards Board (FASB) and the National Association of State Boards of Accountancy (NASBA) established a Blue-Ribbon Panel (BRP) on Standard Setting for Private Companies “to address how accounting standards can best meet the needs of users of U.S. private company financial statements.” In January 2011, the BRP released its recommendation to the FAF that consisted of two major points: a U.S. GAAP model with exceptions and modifications for private companies and a separate private company accounting standards board.

After review and further outreach, the FAF released a plan just last month to establish a Private Company Standards Improvement Council (PCSIC) that would have the authority to identify, propose and vote on specific improvements. The PCSIC would consist of 11-15 members appointed by the FAF, with a FASB member as chairman. The PCSIC would not have final stand-setting authority, as any proposed standard modifications would be subject to ratification by the FASB before being submitted to the public for comment.

The departure from the BRP’s recommendation was due to the FAF’s belief that setting up a separate independent board would lead to two separate sets of accounting standards, a result they felt was unnecessary since most concerns regarding relevance to private companies are limited to a relatively few group of standards.

The complete Plan to Establish the Private Company Standards Improvement Council, as released by the FAF, can be found on their website and is open for public comment until January 14, 2012.

Please contact me at tsolomon@bpw.com if you would like further information on this topic.